Abstract

http://ssrn.com/abstract=1788684
 
 

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Learning and Incentive: A Study on Analyst Response to Pension Underfunding


Xuanjuan Chen


Shanghai University of Finance and Economics

Tong Yao


University of Iowa - Henry B. Tippie College of Business

Tong Yu


University of Rhode Island - College of Business Administration

Ting Zhang


University of Dayton - School of Business Administration

March 17, 2011


Abstract:     
There is a long-standing debate on whether sell-side analysts learn from their experience to improve earnings forecast skills. This study shows that incentive is an important factor for understanding the "learning by doing" effect by analysts. We examine analysts' response to a complex type of information -- corporate pension underfunding. Pension underfunding negatively impacts future earnings and analysts on average underreact to such information in their earnings forecasts. More importantly, when there is a strong incentive for analysts to deliver timely and accurate forecasts, analyst learning effectively reduces their underreaction to pension underfunding information. On the other hand, when such an incentive is absent, the analyst learning effect is not discernible in the data. Further evidence suggests that analyst learning and incentive jointly reduce stock market mispricing associated with corporate pension underfunding.

Number of Pages in PDF File: 45

Keywords: pension funding, analyst forecasts, learning, incentive

JEL Classification: D83, G23, G20

working papers series


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Date posted: March 20, 2011 ; Last revised: August 6, 2012

Suggested Citation

Chen, Xuanjuan and Yao, Tong and Yu, Tong and Zhang, Ting, Learning and Incentive: A Study on Analyst Response to Pension Underfunding (March 17, 2011). Available at SSRN: http://ssrn.com/abstract=1788684 or http://dx.doi.org/10.2139/ssrn.1788684

Contact Information

Xuanjuan Chen
Shanghai University of Finance and Economics ( email )
777 Guoding Road
Shanghai, Shanghai 200433
China
Tong Yao
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
Tong Yu (Contact Author)
University of Rhode Island - College of Business Administration ( email )
Kingston, RI 02881
United States
(401) 874-7415 (Phone)
(401) 874-4312 (Fax)
HOME PAGE: http://www.cba.uri.edu/tong
Ting Zhang
University of Dayton - School of Business Administration ( email )
300 College Park
Dayton, OH 45469
United States
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